RCM Comment: Welcome to the wonderful world of inflation. While on this ride please keep your hands inside the cart at all times. The exhibits below will give you a glimpse into the enormity of the worldwide situation. This ride is speeding up, so please hold on to the bar. You will notice that the bar I am referring to is Gold. This bar is your only defense against being thrown off of the financial track to success. Fiat currencies are being created at an ever increasing rate as governments manipulate laws to continue expanding lines of credit; the proverbial line of coke for the addict. You will notice after reading the following stories there is a rebellion stirring. Gold prices were up this morning $24 even in the face of a stronger U.S.$, but the rally accelerated the second the story broke that the U.S debt limit could be raised to $12.14 trln from $11.315trln and closed on the Comex at 1:30pm up $37.50. Enjoy the ride…

Senate finance package would ok raising US govt borrowing authority to $12.14 trln from $11.315 trln; Senate Finance Committee says to consider stimulus package on Jan 27

ReutersBy David Oakley in London
Published: January 7 2009 13:30 A German sovereign bond auction failed on Wednesday as investors shunned one of the most liquid and safe assets in the world in a warning for governments seeking to raise record amounts of debt to stimulate slowing economies.
The fate of the first eurozone bond auction of 2009 signals trouble ahead as governments around the world hope to issue an estimated $3trln in debt this year, three times more than in 2008.

The 10-year bonds failed to attract enough bids to reach the €6bn the German government wanted. Bids of €5.24bn, a cover of only 87 per cent, amounted to the second worst auction on record in terms of demand. Such developments were rare before the credit crisis. Before the seven German bond auctions that failed last year, the last German bond auction to fail was in July 2000 after the dotcom crash. Analysts said the vast amount of supply is deterring investors and a growing number of countries, including those with deep and mature bond markets, such as Germany, the UK and Italy, are struggling to attract buyers. The Netherlands has seen bond auctions fail, the UK and Italy have been forced to offer investors higher yields to meet their auction targets, while Spain and Belgium have cancelled offerings because of a lack of demand.

The German finance agency admitted that investor appetite for government debt had waned, although insisted the auction was “not a disappointment”. Meyrick Chapman, a UBS fixed-income strategist, said when a German bond auction failed it “does suggest there may be trouble ahead for other governments wanting to raise money in the debt markets. Before the financial crisis, German bond auctions just did not fail.” However, analysts stress the heavy supply is being offset by fears of deflation and recession, which are typically supportive to government bonds and have depressed yields, which have an inverse relationship with price, to historical lows. The UK on Wednesday successfully sold £2bn in gilts due to mature in 2038. But Robert Stheeman, chief executive of the UK Debt Management Office, has warned that the large supply of debt could deter buyers of gilts. Britain is planning to raise £146.4bn in bonds this financial year – three times more than last year.
Copyright The Financial Times Limited 2009

from the UK Telegraph: The Bank of England will be able to print extra money without having legally to declare it under new plans which will heighten fears that the Government will secretly pump extra cash into the economy. The Government is set to throw out the 165-year-old law that obliges the Bank to publish a weekly account of its balance sheet — a move that will allow it theoretically to embark covertly on so-called quantitative easing. The Banking Bill, which is currently passing through Parliament, abolishes a key section of the law laid down by Robert Peel’s Government in 1844 that originally granted the Bank the sole right to print UK money. The ostensible reason for the reform, which means the Bank will not have to print details of its own accounts and the amount of notes and coins flowing through the UK economy, is to allow the Bank more power to overhaul troubled financial institutions in the future, under its Special Resolution Authority. However, some have warned that it means “there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses.” It comes after the Bank’s Monetary Policy Committee cut interest rates by half a percentage point, leaving them at the lowest level since the bank’s foundation in 1694. With the Bank rate now at 1.5 percent, most economists suspect that the Government and Bank will soon be forced to start quantitative easing — directly increasing the quantity of money in the economy — in a drastic attempt to prevent a recession of unprecedented depth. Although the amount of easing is likely to be limited, news of this increased secrecy will spark comparisons with Weimar Germany and Zimbabwe, where uncontrolled use of the central banks’ printing presses ultimately caused hyperinflation. The Bank said it will still publish details of its balance sheet, but, significantly, the data — the main indicator of the extent of quantitative easing — will not be presented until more than a month has elapsed. For instance, under the new terms of the law, if the Bank were to have embarked on a policy of quantitative easing last month, the figures on this would not be published until the end of this month. The reforms, which are likely to be implemented later this year, will make the Bank of England by far the most secretive major central in the world, experts said. In the US, where the Federal Reserve has already cut rates to close to zero and started quantitative easing, the main way to track its purchases of securities and the expansion of its balance sheet is through precisely these same weekly accounts. “Quite why the Bank has to keep its operations so shrouded in secrecy is a mystery to me,” said Simon Ward, economist at New Star. “This will make it much more difficult to track what the Bank is doing.” Among the details which will no longer be published are those revealing the extent to which London’s banks are using the Bank’s deposit facilities — a yardstick of pressure in the financial system. Debating the issue in the House of Lords recently, Lord James of Blackheath, a Conservative peer, said: “Remove [this] control and there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses. “If we went down that path we would be following a road which starts in Weimar, goes on through Harare, and must not end in Westminster and London. That is the great fear that the abolition of that section will bring about — but the Bill abolishes it

Bank of England to buy up corporate bonds to unblock markets
The Independent reports the Bank of England will start buying up corporate bonds within weeks to unblock capital markets and free banks’ balance sheets so that they can lend to support the economy, Mervyn King, the Bank’s Governor, said last night. In his first speech of the year, Mr King outlined radical plans for the Bank to buy up an initial 50 bln pounds of illiquid assets in the market to increase the flow of credit, with the option of ex-tending the scheme to boost the money supply by effectively creating new money. The asset purchases will come on top of a raft of other measures designed to get banks lending to limit the impact of the recession. Mr King told a CBI dinner in Nottingham that the Bank was ready to use “unconventional measures” to boost an economy facing a marked contraction in the first half of this year after a sharp slowdown at the end of 2008. The bank’s intervention in shattered credit markets could make key securities more liquid, reduce the cost of borrowing for companies and ease the strain on banks’ balance sheets, he said.